SEC Denies Stay of Resource Extraction Disclosure Rules -- Will the Conflict Minerals Rules Face the Same Result?

News Brief

By Cydney Posner

The SEC has issued an order denying the request of The American Petroleum Institute, the Chamber of Commerce and others to stay the effectiveness of the SEC's new rules related to disclosure of payments made by resource extraction issuers pending the resolution of litigation challenging the validity of the rules. The plaintiffs can still request a stay through the courts. While this order may seem to be significant only to those companies engaged in mining and oil drilling, it is also very significant as a harbinger of the SEC's likely posture with respect to any similar request that may be filed in connection with the conflict minerals rules, one of the other "specialized disclosure" rules adopted as directed by Congress under Dodd-Frank. ("As directed" may be a key phrase here, distinguishing this rulemaking (and conflict minerals) from the proxy access rules, where the SEC did grant a stay of effectiveness pending the outcome of litigation.)

The SEC found that the plaintiffs failed to carry the burden of showing, among other things, imminent, irreparable harm or a likelihood of success.  First, the SEC found that the level of injury resulting from compliance costs, competitive disadvantage and detrimental effects on existing contracts and operations would not suffice to demonstrate imminent, irreparable harm.  In addition, the plaintiffs in the litigation had identified four alleged defects in the rulemaking that they claimed made it likely that they would succeed in their petition for review or, at a minimum, raise substantial questions about the rule's validity, among them, the public, company-specific disclosure requirement and the SEC's alleged failure to adequately consider the costs and benefits of the rule.  However, because the SEC believed that its construction of the relevant Dodd-Frank provision was "not only reasonable, but correct," and that the adopting release contained "an appropriately thorough economic analysis,"  the SEC found that the plaintiffs did not demonstrate a likelihood of success.  In addition, the SEC was not persuaded that the requested stay would serve the public interest: "Any delay resulting from a stay would potentially frustrate Congress's desire to achieve these benefits."

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